Funding Rates (Ethereum)
Tier 1

Measures the aggregate funding rates for the asset across leading global exchanges.

Overview

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ETH Price with Funding Rates

Factor Plot

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▆ Very Low▆ Low▆ Moderate▆ High▆ Very High

0.02

Overall

Measures the aggregate funding rates for the asset across leading global exchanges.

Potential Edge

Sentiment Amplification Feedback Loop

Crypto funding rates act as a real-time gauge of market positioning extremes. When funding rates reach elevated positive levels (longs paying shorts), this signals overcrowded bullish positioning - a classic contrarian indicator. The mechanism becomes self-reinforcing as:

High rates increase holding costs for longs, forcing profit-taking
Liquidations cascade through over-leveraged positions

Leverage Flush-Out Dynamics

Perpetual futures markets amplify volatility through their embedded leverage (often 10-100x). Elevated funding rates correlate with:

Increased margin pressure on overextended positions
Accelerated liquidations during price reversals
Reflexive selling from forced position unwinds

Data Collection Methodology

Funding rate data is sourced from leading crypto derivatives exchanges (e.g., Binance, OKX) through their published perpetual futures contract metrics. Aggregation involves weighting by open interest to reflect market-wide sentiment. The normalized index compares current rates to historical averages, flagging deviations from typical market conditions.

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Scatter plot - Funding Rates and ETH 30 and 90 Day Average Returns

Backtest - Strategy Performance

	Benchmark (Ethereum)	Strategy
Max Drawdown	-79.4%	-52.8%
Volatility	78.7%	46.9%
Sharpe Ratio	1.08	0.96
CAGR	71.7%	40.6%
Alpha	0.00	0.02
Beta	1.00	0.51

Predictive factors are designed to be translated into simple long-only strategy, with simulated past performance:

100% Long when the predictive factor is close to 1, with a position size equivalent to the predictive factor value.
Flat when the predictive factor is close to 0, with a position size equivalent to the predictive factor value.

The strategy is rebalanced daily, on a continuous basis. There are 0.05% transaction costs applied on each position adjustment.